Money supply growth accelerates inflation in Kazakhstan, National Bank says

Analysts at Kazakhstan’s National Bank have confirmed a stable relationship between money supply and inflation. According to their study, an increase in money supply leads to a rise in prices, with the effect becoming stronger in the long run.

According to the analysts, the impact of money supply on inflation has once again become relevant after the COVID-19 pandemic, as extensive measures to support global economies led to rapid price acceleration. The study revealed that a direct relationship between an increase in money supply and inflation exists in many countries, including Kazakhstan.

According to experts’ calculations, a 10% rise in the M3 money supply — a broad measure reflecting the amount of money in the economy, including cash, deposits and liquid assets — accelerates inflation by 0.8 percentage points (p.p.) within a year and by 1 p.p. within two years. In the long run, the effect becomes even stronger, with a 10% increase in money supply leading to a 1.8% rise in prices.

Data analysis covering the period between 2000 and 2023 indicated that Kazakhstan experienced excessive growth in money supply accompanied by inflation spikes on three occasions. In the short term, prices are influenced by external economic shocks, exchange rate fluctuations and changes in regulated tariffs, but in the long term, money supply remains a crucial factor.  

Experts at the National Bank highlighted that accounting for monetary factors is critical for monetary policy, while excessive money supply may pose risks to macroeconomic stability.

Earlier this month, Kursiv.media reported on acceleration of the inflation rate, which reached 8.9% in January.